10-Q: Leslies Inc. Reports Q3 2024 Results: Sales and Profitability Decline Amidst Weather and Economic Headwinds

Leslies Inc. experienced a decrease in sales and profitability in the third quarter of 2024, impacted by unfavorable weather, chemical pricing actions, and macroeconomic pressures.

Summary

• Leslies Inc.'s sales for the third quarter of 2024 decreased to $569.6 million, down from $610.9 million in the same period last year.
• The company's gross profit also declined to $228.8 million, compared to $251.6 million in the prior year.
• Gross margin decreased to 40.2% from 41.2% year-over-year, primarily due to chemical pricing actions and deleverage on occupancy costs.
• Net income for the quarter was $60.7 million, a decrease from $72.5 million in the prior year.
• For the nine months ended June 29, 2024, sales were $932.3 million, down from $1,018.8 million in the prior year period.
• The company reported a net loss of $13.5 million for the nine-month period, compared to a net income of $10.8 million in the prior year.
• Comparable sales decreased by 4.0% for the quarter and 4.1% for the nine-month period.
• Adjusted EBITDA was $109.5 million for the quarter and $65.8 million for the nine-month period, down from $129.0 million and $108.7 million respectively in the prior year periods.
• The company had $74.4 million in cash and cash equivalents as of June 29, 2024, and no outstanding balance on its Revolving Credit Facility.

Sentiment

Score: 3

Explanation: The document presents a negative outlook due to decreased sales, profitability, and a net loss for the nine-month period. While the company is taking steps to address issues, the overall tone is concerning from an investment perspective.

Positives

• The company made progress on cost management initiatives, resulting in lower payroll and merchant fees.
• The company has $147.7 million remaining under its share repurchase program.
• The company is actively working to remediate material weaknesses in internal controls.

Negatives

• Sales decreased by 6.8% in the third quarter and 9.3% for the nine-month period.
• Gross margin decreased by 100 basis points in the third quarter and 230 basis points for the nine-month period.
• Net income decreased to $60.7 million for the quarter and the company reported a net loss of $13.5 million for the nine-month period.
• Comparable sales declined by 4.0% in the third quarter and 4.1% for the nine-month period.
• Adjusted EBITDA decreased by $19.5 million in the third quarter and $42.9 million for the nine-month period.
• The company experienced a calendar shift that negatively impacted sales.
• The company's results were negatively impacted by unfavorable weather conditions.

Risks

• The company's financial performance is sensitive to weather conditions, which can impact sales.
• Macroeconomic factors such as inflation and interest rates may continue to affect consumer spending.
• Supply chain disruptions could negatively impact product availability and sales.
• The company is currently addressing material weaknesses in internal control over financial reporting.
• The company is involved in ongoing legal proceedings, including a securities class action and derivative actions.

Future Outlook

The company's future performance is subject to various risks and uncertainties, including weather conditions, macroeconomic factors, and supply chain disruptions. The company is focused on improving its internal control processes and managing costs.

Management Comments

• Management noted that sales were adversely impacted by cold and wet weather in April and May.
• Management stated that sales improved in June with warm and dry weather, but it was not enough to offset the lost pool days in April and May.
• Management indicated that weakness in large ticket categories due to high inflation and interest rates contributed to the reduction in average order value.
• Management highlighted that the company is making solid progress on its cost management initiatives.

Industry Context

The pool and spa care industry is highly seasonal, with peak sales occurring during the third and fourth fiscal quarters. Leslies Inc. is the largest direct-to-consumer brand in this industry, and its performance is influenced by weather patterns, consumer spending habits, and macroeconomic conditions. The company's results reflect the challenges faced by the industry due to unfavorable weather and economic pressures.

Comparison to Industry Standards

• While specific competitor data is not provided in the document, Leslies' performance can be compared to other retailers in the pool and spa industry, such as Pool Corporation (POOL) and other specialty retailers.
• Leslies' decrease in sales and gross margin is likely reflective of broader industry trends, including the impact of weather and economic conditions on consumer spending.
• The company's focus on cost management and remediation of internal control weaknesses is consistent with best practices in the retail industry.
• The company's reliance on a physical network of over 1,000 branded locations and a robust digital platform is a key differentiator compared to other companies in the industry.

Legal Proceedings

• A class action complaint for violation of federal securities laws was filed against the company, its CEO, and former CFO.
• Derivative actions were filed against the company's officers and directors.
• The company is involved in other lawsuits and potential claims encountered in the normal course of business.

Related Party Transactions

• The company entered into a share repurchase agreement with Bubbles Investor Aggregator, L.P. and Explorer Investment Pte. Ltd. in 2021.

Stakeholder Impact

• Shareholders are negatively impacted by the decrease in sales, profitability, and the net loss.
• Employees may be affected by cost management initiatives.
• Customers may experience changes in product availability and pricing.
• Suppliers may be impacted by changes in the company's purchasing patterns.

Next Steps

• The company will continue to implement its plan to address material weaknesses in internal control over financial reporting.
• The company will continue to monitor and manage its costs.
• The company will continue to evaluate new opportunities in new and existing markets.

Key Dates

Keywords

pool supplies, spa care, retail, e-commerce, financial results, sales, gross margin, net income, EBITDA, internal controls, legal proceedings, share repurchase